BILL NUMBER: AB 2892	CHAPTERED  09/29/00

	CHAPTER   863
	FILED WITH SECRETARY OF STATE   SEPTEMBER 29, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 28, 2000
	PASSED THE ASSEMBLY   AUGUST 22, 2000
	PASSED THE SENATE   AUGUST 18, 2000
	AMENDED IN SENATE   AUGUST 10, 2000

INTRODUCED BY   Committee on Revenue and Taxation (Knox (Chair),
Alquist, Aroner, Ducheny, Honda, and Romero)

                        MARCH 9, 2000

   An act to amend Sections 18505, 18508, 18528, 18532, 18631, 18633,
18633.5, 18639, 19101, 19104, 19105, 19183, and 23802 of, to amend
and renumber Sections 18503, 18547, 18552, and 19524 of, to add
Sections 18505.3, 18531.5, 18635.5, 19120, and 19368 to, and to
repeal Sections 18504, 18507, 18636, 18637, 18638, 18641, 18643,
18645, 18647, 19102, 19103, 19106, 19111, 19115, and 23810 of, the
Revenue and Taxation Code, relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2892, Committee on Revenue and Taxation.  Income and bank and
corporation taxes:  federal conformity:  clarifications.
   The Personal Income Tax Law, the Bank and Corporation Tax Law, and
related administrative laws provide specified conformity to federal
income tax law with respect to information returns and returns of
individuals and fiduciaries.
   This bill would provide additional conformity to those federal
provisions, consolidate filing requirement provisions, delete
obsolete provisions, and make related clarifying and technical
changes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 18503 of the Revenue and Taxation Code is
amended and renumbered to read:
   18505.6.  If an individual is unable to make a return required
under Section 18501, the return of that individual shall be made by a
duly authorized agent, his or her committee, guardian, fiduciary, or
other person charged with the care of the person or property of the
individual.  The preceding sentence shall not apply in the case of a
receiver appointed by authority of law in possession of only a part
of the property of an individual.
  SEC. 2.  Section 18504 of the Revenue and Taxation Code is
repealed.
  SEC. 3.  Section 18505 of the Revenue and Taxation Code is amended
to read:
   18505.  Every fiduciary (except a receiver appointed by authority
of law in possession of only a part of the property of an individual)
taxable under Part 10 (commencing with Section 17001) shall make a
return, which shall contain or be verified by a written declaration
that it is made under the penalties of perjury, for any of the
following taxpayers for whom he or she acts, stating specifically the
items of gross income of the taxpayer and the deductions and credits
allowed for the taxable year:
   (a) Every individual having an adjusted gross income from all
sources in excess of eight thousand dollars ($8,000), if single.
   (b) Every individual having an adjusted gross income from all
sources in excess of sixteen thousand dollars ($16,000), if married.

   (c) Every individual having a gross income from all sources in
excess of ten thousand dollars ($10,000), if single, and twenty
thousand dollars ($20,000), if married, regardless of the amount of
adjusted gross income.
   (d) Every estate  having a net income  from all sources in excess
of one thousand dollars ($1,000).
   (e) Every trust (not treated as a corporation under Section 23038)
having a net income from all sources in excess of one hundred
dollars ($100).
   (f) Every estate or trust (not treated as a corporation under
Section 23038) having a gross income from all sources in excess of
ten thousand dollars ($10,000), regardless of the amount of the net
income.
   (g) Every decedent, for the year in which death occurred, and for
prior years, if returns for those years should have been filed but
have not been filed by the decedent, under the rules and regulations
that the Franchise Tax Board may prescribe.
  SEC. 4.  Section 18505.3 is added to the Revenue and Taxation Code,
to read:
   18505.3.  If an individual is deceased, the return of that
individual required under Section 18501 shall be made by his or her
executor, administrator, or other person charged with property of
that decedent.
  SEC. 5.  Section 18507 of the Revenue and Taxation Code is
repealed.
  SEC. 6.  Section 18508 of the Revenue and Taxation Code is amended
to read:
   18508.  (a) Returns of an estate, a trust, or an estate of an
individual under Chapter 7 or Chapter 11 of Title 11 of the United
States Code shall be made by the fiduciary thereof.
   (b) Under the rules and regulations that the Franchise Tax Board
may prescribe, a return made by one of two or more joint fiduciaries
shall be sufficient  compliance with the requirements of Section
18501. A return made pursuant to this subdivision shall contain a
statement that the fiduciary has sufficient knowledge of the affairs
of the person for whom the return is made to enable him or her to
make the return, and that the return is, to the best of his or her
knowledge and belief, true and correct.
  SEC. 7.  Section 18528 of the Revenue and Taxation Code is amended
to read:
   18528.  (a) For the purposes of Sections 19057 to 19067, inclusive
(relating to period of limitations upon assessment and collection),
and for the purposes of Section 19131 (relating to delinquent
returns), a joint return made under Section 18522 shall be deemed to
have been filed  as follows:
   (1) Where both spouses filed separate returns prior to making the
joint return, on the date the last separate return was filed (but not
earlier than the last date prescribed by this part for filing the
return of either spouse).
   (2) Where one spouse filed a separate return prior to the making
of the joint return, and the other spouse had eight thousand dollars
($8,000) or less of adjusted gross income from all sources and ten
thousand dollars ($10,000) or less of gross income from all sources
for the taxable year, on the date of the filing of the separate
return (but not earlier than the last date prescribed by this part
for the filing of the separate return).
   (3) Where only one spouse filed a separate return prior to the
making of a joint return and the other spouse had an adjusted gross
income from all sources in excess of eight thousand dollars ($8,000)
or a gross income from all sources in excess of ten thousand dollars
($10,000) for the taxable year, on the date of the filing of the
joint return.
   (b) For purposes of Article 1 (commencing with Section 19301) of
Chapter 6, a joint return made under Section 18522 shall be deemed to
have been filed on the later of the last date prescribed by this
part for filing the return for the taxable year (determined without
regard to any extension of time granted to either spouse) or the date
the later timely filed separate return was filed.
  SEC. 8.  Section 18531.5 is added to the Revenue and Taxation Code,
to read:
   18531.5.  For purposes of Section 443 of the Internal Revenue
Code, where the husband and wife have different taxable years because
of the death of either spouse, the joint return shall be treated as
if the taxable years of both spouses ended on the date of the closing
of the surviving spouse's taxable year.
  SEC. 9.  Section 18532 of the Revenue and Taxation Code is amended
to read:
   18532.  For the purposes of this article, each of the following
shall apply:
   (a) The status as husband and wife of two individuals having
taxable years beginning on the same day shall be determined as
follows:
   (1) If both have the same taxable year, then as of the close of
that year.
   (2) If one dies before the close of the taxable year of the other,
then as of the time of the death.
   (b) An individual who is legally separated from his or her spouse
under a decree of divorce or of separate maintenance shall not be
considered as married.
   (c) If a joint return is made, the tax shall be computed on the
aggregate income and the liability with respect to the tax shall be
joint and several.
  SEC. 10.  Section 18547 of the Revenue and Taxation Code is amended
and renumbered to read:
   18628.  (a) Any person required to register a tax shelter with the
Secretary of the Treasury under Section 6111 of the Internal Revenue
Code shall, if that tax shelter is organized in California, be
required to send a duplicate of that registration information to the
Franchise Tax Board not later than the day on which the first
offering for sale of interests in that tax shelter occurs.
   (b) Any person required to register under Section 6111 of the
Internal Revenue Code who receives a tax registration number from the
Secretary of the Treasury shall, within 30 days after request by the
Franchise Tax Board, file a statement of that registration number.
   (c) Section 6111(b) of the Internal Revenue Code, relating to
inclusion of tax shelter identification numbers on returns, shall be
applicable.
  SEC. 11.  Section 18552 of the Revenue and Taxation Code is amended
and renumbered to read:
   18408.  The Franchise Tax Board is authorized to require that
information with respect to persons subject to the taxes imposed by
Article 5 (commencing with Section 18661) of Chapter 2 (relating to
tax withheld at source) as is necessary or helpful in securing proper
identification of those persons.
  SEC. 12.  Section 18631 of the Revenue and Taxation Code is amended
to read:
   18631.  (a) This article does not apply to any payment of interest
obligations not taxable under Part 10 (commencing with Section
17001) or Part 11 (commencing with Section 23001).
   (b) Except as otherwise provided, every person required to file an
information return with the Secretary of the Treasury under any of
the federal sections listed in subdivision (c) may be required to
file a copy of the federal information return with the Franchise Tax
Board at the time and in the manner as it may, by forms and
instructions, require.
   (c) Subdivision (b) shall apply to each of the following:
   (1) Section 6034A of the Internal Revenue Code, relating to
information to beneficiaries of estates and trusts.
   (2) Section 6039 of the Internal Revenue Code, relating to
information required in connection with certain options.
   (3) Section 6039C of the Internal Revenue Code, relating to
returns with respect to foreign persons holding direct investments in
United States real property interests, if that person holds a direct
investment in a California real property as defined in Section
18662.
   (4) Section 6041 of the Internal Revenue Code, relating to
information at source.
   (5) Section 6041A of the Internal Revenue Code, relating to
returns regarding payments of remuneration for services and direct
sales, except that no return or statement shall be required with
respect to direct sales pursuant to Section 6041A(b) of the Internal
Revenue Code.
   (6) Section 6042 of the Internal Revenue Code, relating to returns
regarding payments of dividends and corporate earnings and profits.

   (7) Section 6045 of the Internal Revenue Code, relating to returns
of brokers.
   (8) Section 6049 of the Internal Revenue Code, relating to returns
regarding payments of interest.
   (9) Section 6050H of the Internal Revenue Code, relating to
returns of mortgage interest received in trade or business from
individuals.
   (10) (A) Section 6050I of the Internal Revenue Code, relating to
cash received in trade or business, etc., except that Section 6050I
(g) of the Internal Revenue Code, relating to cash received by
criminal court, shall not apply.
   (B) (i) The Attorney General shall, upon court order following a
showing ex parte to a magistrate of an articulable suspicion that an
individual or entity has committed a felony offense to which a
federal information return is related, be provided a copy of a
federal information return filed with the Franchise Tax Board under
this paragraph.  The Attorney General may make a return or
information therefrom available to a district attorney subject to
regulations promulgated by the Attorney General.  The regulations
shall require the district attorney seeking the return or information
to specify in writing the specific reasons for believing that a
felony offense has been committed to which the return or information
is related.
   (ii) Any information or return obtained by the Attorney General or
a district attorney pursuant to this subparagraph shall be
confidential and used only for investigative or prosecutorial
purposes.
   (11) Section 6050J of the Internal Revenue Code, relating to
returns of foreclosures and abandonments of security.
   (12) (A) Section 6050K of the Internal Revenue Code, relating to
returns of exchanges of certain partnership interests.
   (B) In addition to the general requirement under subparagraph (A),
a transferor of a partnership interest shall be required to notify
the partnership of that exchange in accordance with Section 6050K(c)
of the Internal Revenue Code.
   (13) Section 6050L of the Internal Revenue Code, relating to
returns of certain dispositions of donated property.
   (14) Section 6050N of the Internal Revenue Code, relating to
returns regarding payments of royalties.
   (15) Section 6050P of the Internal Revenue Code, relating to
returns of cancellation of indebtedness by certain entities.
   (16) Section 6050Q of the Internal Revenue Code, relating to
certain long-term care benefits.
   (17) Section 6050R of the Internal Revenue Code, relating to
returns of certain purchases of fish.
   (18) Section 6050S of the Internal Revenue Code, relating to
higher education tuition and related expenses.
   (19) Section 6052 of the Internal Revenue Code, relating to
returns regarding payment of wages in the form of group-term life
insurance.
   (d) Every person required to make a return under subdivision (b)
shall also furnish a statement to each person whose name is required
to be set forth in the return, as required to do so by the Internal
Revenue Code.
  SEC. 13.  Section 18633 of the Revenue and Taxation Code is amended
to read:
   18633.  (a) (1) Every partnership, on or before the fifteenth day
of the fourth month following the close of its taxable year, shall
make a return for that taxable year, stating specifically the items
of gross income and the deductions allowed by Part 10 (commencing
with Section 17001).  Except as otherwise provided in Section
18621.5, the return shall include the names, addresses, and taxpayer
identification numbers of the persons, whether residents or
nonresidents, who would be entitled to share in the net income if
distributed and the amount of the distributive share of each person.
The return shall contain or be verified by a written declaration
that it is made under penalty of perjury, signed by one of the
partners.
   (2) In addition to returns required by paragraph (1), every
limited partnership subject to the tax imposed by subdivision (b) of
Section 17935, on or before the fifteenth day of the fourth month
following the close of its taxable year, shall make a return for that
taxable year, containing the information identified in paragraph
(1).  In the case of a limited partnership not doing business in this
state, the Franchise Tax Board shall prescribe the manner and extent
to which the information identified in paragraph (1) shall be
included with the return required by this paragraph.
   (b) Each partnership required to file a return under subdivision
(a) for any taxable year shall (on or before the day on which the
return for that taxable year was required to be filed) furnish to
each person who is a partner or who holds an interest in that
partnership as a nominee for another person at any time during that
taxable year a copy of the information required to be shown on that
return as may be required by regulations.
   (c) Any person who holds an interest in a partnership as a nominee
for another person shall do both of the following:
   (1) Furnish to the partnership, in the manner prescribed by the
Franchise Tax Board, the name, address, and taxpayer identification
number of that other person, and any other information for that
taxable year as the Franchise Tax Board may by form and regulation
prescribe.
   (2) Furnish to that other person, in the manner prescribed by the
Franchise Tax Board, the information provided by that partnership
under subdivision (b).
   (d) The provisions of Section 6031(d) of the Internal Revenue
Code, relating to the separate statement of items of unrelated
business taxable income, shall apply.
  SEC. 14.  Section 18633.5 of the Revenue and Taxation Code is
amended to read:
   18633.5.  (a) Every limited liability company which is classified
as a partnership for California tax purposes that is doing business
in this state, organized in this state, or registered with the
Secretary of State shall file its return on or before the fifteenth
day of the fourth month following the close of its taxable year,
shall make a return for that taxable year, stating specifically the
items of gross income and the deductions allowed by Part 10
(commencing with Section 17001).  The return shall include the names,
addresses, and taxpayer identification numbers of the persons,
whether residents or nonresidents, who would be entitled to share in
the net income if distributed and the amount of the distributive
share of each person.  The return shall contain or be verified by a
written declaration that it is made under penalty of perjury, signed
by one of the limited liability company members.  In the case of a
limited liability company not doing business in this state, and
subject to the tax imposed by subdivision (b) of Section 17941, the
Franchise Tax Board shall, for returns required to be filed on or
after January 1, 1998, prescribe the manner and extent to which the
information identified in this subdivision shall be included with the
return required by this subdivision.
   (b) Each limited liability company required to file a return under
subdivision (a) for any limited liability company taxable or income
year shall, on or before the day on which the return for that taxable
or income year was required to be filed, furnish to each person who
holds an interest in that limited liability company at any time
during that taxable or income year a copy of that information
required to be shown on that return as may be required by forms and
instructions prescribed by the Franchise Tax Board.
   (c) Any person who holds an interest in a limited liability
company as a nominee for another person shall do both of the
following:
   (1) Furnish to the limited liability company, in the manner
prescribed by the Franchise Tax Board, the name, address, and
taxpayer identification number of that person, and any other
information for that taxable or income year as the Franchise Tax
Board may prescribe by forms and instructions.
   (2) Furnish to that other person, in the manner prescribed by the
Franchise Tax Board, the information provided by that limited
liability company under subdivision (b).
   (d) The provisions of Section 6031(d) of the Internal Revenue
Code, relating to the separate statement of items of unrelated
business taxable income, shall apply.
   (e) (1) A limited liability company shall file with its return
required under subdivision (a), in the form required by the Franchise
Tax Board, the agreement of each nonresident member to file a return
pursuant to Section 18501, to make timely payment of all taxes
imposed on the member by this state with respect to the income of the
limited liability company, and to be subject to personal
jurisdiction in this state for purposes of the collection of income
taxes, together with related interest and penalties, imposed on the
member by this state with respect to the income of the limited
liability company.  If the limited liability company fails to timely
file the agreements on behalf of each of its nonresident members,
then the limited liability company shall, at the time set forth in
subdivision (f), pay to this state on behalf of each nonresident
member of whom an agreement has not been timely filed an amount equal
to the highest marginal tax rate in effect under Section 17041, in
the case of members which are individuals, estates, or trusts, and
Section 23151, in the case of members which are corporations,
multiplied by the amount of the member's distributive share of the
income source to the state reflected on the limited liability company'
s return for the taxable period.  A limited liability company shall
be entitled to recover the payment made from the member on whose
behalf the payment was made.
   (2) If a limited liability company fails to attach the agreement
or to timely pay the payment required by paragraph (1), the payment
shall be considered the tax of the limited liability company for
purposes of the penalty prescribed by Section 19132 and interest
prescribed by Section 19101 for failure to timely pay the tax.
Payment of the penalty and interest imposed on the limited liability
company for failure to timely pay the amount required by this
subdivision shall extinguish the liability of a nonresident member
for the penalty and interest for failure to make timely payment of
all taxes imposed on that member by this state with respect to the
income of the limited liability company.
   (3) No penalty or interest shall be imposed on the limited
liability company under paragraph (2) if the nonresident member
timely files and pays all taxes imposed on the member by this state
with respect to the income of the limited liability company.
   (f) Any agreement of a nonresident member required to be filed
pursuant to subdivision (e) shall be filed at either of the following
times:
   (1) The time the annual return is required to be filed pursuant to
this section for the first taxable period for which the limited
liability company became subject to tax pursuant to Chapter 10.6
(commencing with Section 17941).
   (2) The time the annual return is required to be filed pursuant to
this section for any taxable period in which the limited liability
company had a nonresident member on whose behalf an agreement
described in subdivision (e) has not been previously filed.
   (g) Any amount paid by the limited liability company to this state
pursuant to paragraph (1) of subdivision (e) shall be considered to
be a payment by the member on account of the income tax imposed by
this state on the member for the taxable period.
   (h) Every limited liability company that is classified as a
corporation for California tax purposes shall be subject to the
requirement to file a tax return under the provisions of Part 10.2
(commencing with Section 18401) and the applicable taxes imposed by
Part 11 (commencing with Section 23001) including Section 23221
relating to the prepayment of the minimum tax to the Secretary of
State.
   (i) (1) Every limited liability company doing business in this
state, organized in this state, or registered with the Secretary of
State, that is disregarded pursuant to Section 23038 shall file a
return that includes information necessary to verify its liability
under Sections 17941 and 17942, provides its sole owner's name and
taxpayer identification number, includes the consent of the owner to
California tax jurisdiction, and includes other information necessary
for the administration of this part, Part 10 (commencing with
Section 17001), or Part 11 (commencing with Section 23001).
   (2) If the owner's consent required under paragraph (1) is not
included, the limited liability company shall pay on behalf of its
owner an amount consistent with, and treated the same as, the amount
to be paid under subdivision (e) by a limited liability company on
behalf of a nonresident member for whom an agreement required by
subdivision (e) is not attached to the return of the limited
liability company.
   (3) The return required under paragraph (1) shall be filed on or
before the fifteenth day of the fourth month after the close of the
taxable year of the owner or on or before the fifteenth day of the
third month after the close of the income year of the owner,
whichever is applicable.
   (4) For limited liability companies disregarded pursuant to
Section 23038, "taxable or income year of the owner" shall be
substituted for "taxable year" in Sections 17941 and 17942.
  SEC. 15.  Section 18635.5 is added to the Revenue and Taxation
Code, to read:
   18635.5.  (a) Section 6034A of the Internal Revenue Code, relating
to information to beneficiaries of estates and trusts, shall apply,
except as otherwise provided.
   (b) Section 6034A(a) is modified to refer to Section 18505 in lieu
of Section 6012(a) of the Internal Revenue Code.
   (c) Section 6034A(c)(3) is modified to refer to Section 19051 in
lieu of Section 6213(b)(1) of the Internal Revenue Code.
   (d) Section 6034A(c)(5) is modified to refer to Article 7 of
Chapter 4 of this part in lieu of Part II of Subchapter A of Chapter
68 of the Internal Revenue Code.
  SEC. 16.  Section 18636 of the Revenue and Taxation Code is
repealed.
  SEC. 17.  Section 18637 of the Revenue and Taxation Code is
repealed.
  SEC. 18.  Section 18638 of the Revenue and Taxation Code is
repealed.
  SEC. 19.  Section 18639 of the Revenue and Taxation Code is amended
to read:
   18639.  (a) (1) In addition to those reports required under
paragraph (8) of subdivision (c) of Section 18631, information
returns shall be required, at the time and in the form and manner and
to the extent that the Franchise Tax Board may prescribe, from both
of the following:
   (A) Every person who makes payments of exempt-interest dividends,
as described in Section 852(b)(5) of the Internal Revenue Code, that
are not exempt-interest dividends, as described in Section 17145 of
the Revenue and Taxation Code, aggregating ten dollars ($10) or more
to any person, other than to any person described in paragraph (2),
during any calendar year.
   (B) Every person who receives payments of interest as a nominee
and who makes payments aggregating ten dollars ($10) or more during
any calendar year to any other person, other than to any person
described in paragraph (2), with respect to the interest so received.
  For purposes of this paragraph, "interest" is limited to interest
on any obligation if the interest is exempt from tax under Section
103(a) of the Internal Revenue Code or if the interest is exempt from
tax, without regard to the identity of the holder, under any other
provision of Title 26 of the United States Code, but which is not
exempt from income tax under Part 10 (commencing with Section 17001).

   (2) For purposes of this subdivision, a person shall not be
required to make a report pursuant to paragraph (1) if the person
receiving the payment is any of the following:
   (A) A corporation.
   (B) An organization exempt from taxation under Section 23701 or an
individual retirement plan.
   (C) The United States or any wholly owned agency or
instrumentality thereof.
   (D) A state, the District of Columbia, a possession of the United
States, any political subdivision of any of the foregoing, or any
wholly owned agency or instrumentality of any one or more of the
foregoing.
   (E) A foreign government, a political subdivision of a foreign
government, or any wholly owned agency or instrumentality of any one
or more of the foregoing.
   (F) An international organization or any wholly owned agency or
instrumentality thereof.
   (G) A foreign central bank of issue.
   (H) A dealer in securities or commodities required to register
under the laws of the United States or a state, the District of
Columbia, or possession of the United States.
   (I) A real estate investment trust, as defined in Section 856 of
the Internal Revenue Code.
   (J) An investment company, as defined in Section 80a-3 of the
United States Code, registered at all times during the taxable year
under the Investment Company Act of 1940.
   (K) A common trust fund, as defined in Section 17671.
   (L) Any trust that is exempt from tax under Section 664(c) of
Title 15 of the Internal Revenue Code.
                                                            (b) Every
person required to make a return under this section shall also
furnish a statement to each person whose name is set forth in the
return, as required to do so by the Internal Revenue Code.
  SEC. 20.  Section 18641 of the Revenue and Taxation Code is
repealed.
  SEC. 21.  Section 18643 of the Revenue and Taxation Code is
repealed.
  SEC. 22.  Section 18645 of the Revenue and Taxation Code is
repealed.
  SEC. 23.  Section 18647 of the Revenue and Taxation Code is
repealed.
  SEC. 24.  Section 19101 of the Revenue and Taxation Code is amended
to read:
   19101.  (a) If any amount of tax imposed by Part 10 (commencing
with Section 17001) or Part 11 (commencing with Section 23001), is
not paid on or before the last date prescribed for payment, interest
on that amount at the adjusted annual rate established under Section
19521 shall be paid for the period from that last date  to the date
paid.
   (b) For purposes of this article, the last date prescribed for
payment of the tax shall be determined under Chapter 4 (commencing
with Section 19001), with the application of the following rules:
   (1) The last date prescribed for payment shall be determined
without regard to any extension of time for payment or any
installment agreement entered into under Section 19008.
   (2) The last date prescribed for payment shall be determined
without regard to any notice and demand for payment issued, by reason
of jeopardy as provided in Article 5 (commencing with Section
19081), prior to the last date otherwise prescribed for that payment.

   (3) In all other cases in which the last date for payment is not
otherwise prescribed, the last date for payment shall be deemed to be
the date the liability for tax arises (and in no event shall be
later than the date notice and demand for the tax is made by the
Franchise Tax Board).
   (c) Except as provided in this article:
   (1) Interest prescribed under this article on any tax shall be
paid upon notice and demand, and shall be assessed, collected, and
paid in the same manner as taxes.  Any reference in Part 10
(commencing with Section 17001), Part 11 (commencing with Section
23001), or this part (except Article 3 (commencing with Section
19031), relating to deficiency assessments) to any tax imposed by
Part 10 (commencing with Section 17001) or Part 11 (commencing with
Section 23001) shall be deemed also to refer to interest imposed by
this article on that tax.
   (2) (A) Interest shall be imposed under subdivision (a) in respect
to any assessable penalty, additional amount, or addition to the tax
(other than an addition to tax imposed under Section 19131, 19132,
or 19164) only if that assessable penalty, additional amount, or
addition to the tax is not paid within 15 calendar days from the date
of notice and demand therefor, and in that case interest shall be
imposed only for the period from the date of the notice and demand to
the date of payment.
   (B) Interest shall be imposed under this article with respect to
any addition to tax imposed by Section 19131 (relating to failure to
file a return on or before the due date), Section 19132 (relating to
underpayment of tax), or Section 19164 (relating to imposition of the
accuracy-related penalty), for the period that:
   (i) Begins on the date on which the return of the tax with respect
to which that addition to tax is imposed is required to be filed
(including any extensions), and
   (ii) Ends on the date of payment of that addition to tax.
   (3) If notice and demand is made for payment of any amount and if
that amount is paid within 15 calendar days after the date of the
notice and demand, interest under this article on the amount so paid
shall not be imposed for the period after the date of the notice and
demand.
   (d) This article shall not apply to any failure to pay estimated
tax required by Section 19025 or 19136.
  SEC. 25.  Section 19102 of the Revenue and Taxation Code is
repealed.
  SEC. 26.  Section 19103 of the Revenue and Taxation Code is
repealed.
  SEC. 27.  Section 19104, as amended by Chapter 183 of the Statutes
of 2000, of the Revenue and Taxation Code is amended to read:
   19104.  (a) The Franchise Tax Board may abate all or any part of
any of the following:
   (1) Any interest on a deficiency or related to a proposed
deficiency to the extent that interest is attributable in whole or in
part to any unreasonable error or delay by an officer or employee of
the Franchise Tax Board (acting in his or her official capacity) in
performing a ministerial or managerial act.
   (2) Any interest on a payment of any tax described in Section
19033 to the extent that any delay in that payment is attributable to
an officer or employee of the Franchise Tax Board (acting in his or
her official capacity) being dilatory in performing a ministerial or
managerial act.
   (3) Any interest accruing from a deficiency based on a final
federal determination of tax, for the same period that interest was
abated on the related federal deficiency amount under Section 6404(e)
of the Internal Revenue Code, and the error or delay occurred on or
before the issuance of the final federal determination.  This
subparagraph shall apply to any ministerial act for which the
interest accrued after September 25, 1987, or for any managerial act
applicable to a taxable or income year beginning on or after January
1, 1998, for which the Franchise Tax Board may propose an assessment
or allow a claim for refund.
   (b) For purposes of  subdivision (a):
   (1) Except as provided in  paragraph (3), an error or delay shall
be taken into account only if no significant aspect of that error or
delay can be attributed to the taxpayer involved and after the
Franchise Tax Board has contacted the taxpayer in writing with
respect to that deficiency or payment.
   (2) (A) Except as provided in  paragraph (4), after the Franchise
Tax Board mails its notice of determination not to abate interest, a
taxpayer may appeal the Franchise Tax Board's determination to the
State Board of Equalization within the following periods:
   (i) Thirty days in the case of any unpaid interest described under
  subdivision (a).
   (ii) Ninety days in the case of any paid interest described under
subdivision (a).
   (B) The State Board of Equalization shall have jurisdiction over
the appeal to determine whether the Franchise Tax Board's failure to
abate interest under this section was an abuse of discretion, and may
order an abatement.
   (C) Except for  clauses (i) and (ii) of subparagraph (A), the
provisions of this  paragraph are operative for requests for
abatement of interest made on or after January 1, 1998.  The
provisions of  clauses (i) and (ii) of subparagraph (A) shall apply
to requests for abatement of interest made on or after January 1,
2001, in accordance with  subdivision (d).
   (3) If the Franchise Tax Board fails to mail its notice of
determination on a request to abate interest within six months after
the request is filed, the taxpayer may consider that the Franchise
Tax Board has determined not to abate interest and appeal that
determination to the board.  This paragraph shall not apply to
requests for abatement of interest made pursuant to  paragraph (4).
   (4) A request for abatement of interest related to a proposed
deficiency may be made with the written protest of the underlying
proposed deficiency filed pursuant to Section 19041 or with an appeal
to the board under Section 19045 in the form and manner required by
the Franchise Tax Board.  The action of the Franchise Tax Board
denying any portion of the request for abatement of interest relating
to the proposed deficiency shall be considered as part of the appeal
of the action of the Franchise Tax Board on the protest of the
proposed deficiency.  If the taxpayer filed an appeal from the
Franchise Tax Board's action  on the protest of a proposed deficiency
and the deficiency is final pursuant to Section 19048, the taxpayer
may not thereafter request an abatement of interest accruing prior to
the time the deficiency is final.  However, the taxpayer may
thereafter request an abatement pursuant to this section limited to
interest accruing after the deficiency is final.
   (c) The Franchise Tax Board shall abate the assessment of all
interest on any erroneous refund for which an action for recovery is
provided under Section 19411 until 30 days after the date demand for
repayment is made, unless either of the following has occurred:
   (1) The taxpayer (or a related party) has in any way caused that
erroneous refund.
   (2) That erroneous refund exceeds fifty thousand dollars
($50,000).
   (d) The amendments made to this  section by the act adding this
subdivision shall apply to requests for abatement of interest and
appeals made on or after January 1, 2001.
   (e) Except as provided in  subparagraph (C) of paragraph (2) of
subdivision (b), the amendments made by Chapter 600 of the Statutes
of 1997 are operative with respect to taxable or income years
beginning on or after January 1, 1998.
  SEC. 28.  Section 19105 of the Revenue and Taxation Code is amended
to read:
   19105.  In the case of an individual or fiduciary, the Franchise
Tax Board shall not assess interest charges pursuant to Section 19101
for the period between 45 days after the date of final review of an
audit determining an additional amount is owed and the date a notice
of proposed deficiency assessment is sent to the taxpayer.
  SEC. 29.  Section 19106 of the Revenue and Taxation Code is
repealed.
  SEC. 30.  Section 19111 of the Revenue and Taxation Code is
repealed.
  SEC. 31.  Section 19115 of the Revenue and Taxation Code is
repealed.
  SEC. 32.  Section 19120 is added to the Revenue and Taxation Code,
to read:
   19120.  Any portion of any amount which has been erroneously
refunded and which is recoverable by suit pursuant to Section 19411
shall bear interest at the adjusted annual rate established pursuant
to Section 19521 from the date that is 30 days after the Franchise
Tax Board mails a notice and demand for repayment.
  SEC. 33.  Section 19183 of the Revenue and Taxation Code is amended
to read:
   19183.  (a) (1) A penalty shall be imposed for failure to file
correct information returns, as required by this part, and that
penalty shall be determined in accordance with Section 6721 of the
Internal Revenue Code.
   (2) Section 6721(e) of the Internal Revenue Code is modified to
the extent that the reference to Section 6041A(b) of the Internal
Revenue Code shall not apply.
   (b) (1) A penalty shall be imposed for failure to furnish correct
payee statements as required by this part, and that penalty shall be
determined in accordance with Section 6722 of the Internal Revenue
Code.
   (2) Section 6722(c) of the Internal Revenue Code is modified to
the extent that the references to Sections 6041A(b) and 6041A(e) of
the Internal Revenue Code shall not apply.
   (c) A penalty shall be imposed for failure to comply with other
information reporting requirements under this part, and that penalty
shall be determined in accordance with Section 6723 of the Internal
Revenue Code.
   (d) (1) The provisions of Section 6724 of the Internal Revenue
Code relating to waiver, definitions, and special rules, shall apply,
except as otherwise provided.
   (2) Section 6724(d)(1) is modified as follows:
   (A) The following references are substituted:
   (i) Subdivision (a) of Section 18640, in lieu of Section 6044(a)
(1) of the Internal Revenue Code.
   (ii) Subdivision (a) of Section 18644, in lieu of Section 6050A(a)
of the Internal Revenue Code.
   (B) References to Sections 4093(c)(4), 4093(e), 4101(d), 6041(b),
6041A(b), 6045(d), 6051(d), and 6053(c)(1) of the Internal Revenue
Code shall not apply.
   (C) The term "information return" shall also include the return
required by paragraph (1) of subdivision (h) of Section 18662.
   (3) Section 6724(d)(2) is modified as follows:
   (A) The following references are substituted:
   (i) Subdivision (b) of Section 18640, in lieu of Section 6044(e)
of the Internal Revenue Code.
   (ii) Subdivision (b) of Section 18644, in lieu of Section 6050A(b)
of the Internal Revenue Code.
   (B) References to Sections 4093(c)(4)(B), 6031(b), 6037(b), 6041A
(e), 6045(d), 6051(d), 6053(b), and 6053(c) of the Internal Revenue
Code shall not apply.
   (C) The term "payee statement" shall also include the statement
required by paragraph (2) of subdivision (h) of Section 18662.
   (e) In the case of each failure to provide a written explanation
as required by Section 402(f) of the Internal Revenue Code, at the
time prescribed therefor, unless it is shown that the failure is due
to reasonable cause and not to willful neglect, there shall be paid,
on notice and demand of the Franchise Tax Board and in the same
manner as tax, by the person failing to provide that written
explanation, an amount equal to ten dollars ($10) for each failure,
but the total amount imposed on that person for all those failures
during any calendar year shall not exceed five thousand dollars
($5,000).
   (f) Any penalty imposed by this part shall be paid on notice and
demand by the Franchise Tax Board and in the same manner as tax.
  SEC. 34.  Section 19368 is added to the Revenue and Taxation Code,
to read:
   19368.  If the Franchise Tax Board makes or allows a refund or
credit that it determines to be erroneous, in whole or in part, the
amount erroneously made or allowed may be assessed and collected
after notice and demand pursuant to Section 19051 (pertaining to
mathematical errors), except that the rights of protest and appeal
shall apply with respect to amounts assessable as deficiencies
without regard to the running of any period of limitations provided
elsewhere in this part.  Notice and demand for repayment must be made
within two years after the refund or credit was made or allowed, or
during the period within which the Franchise Tax Board may mail a
notice of proposed deficiency assessment, whichever period expires
the later.  Interest on amounts erroneously made or allowed shall not
accrue until 30 days from the date the Franchise Tax Board mails a
notice and demand for repayment as provided by this section.
  SEC. 35.  Section 19524 of the Revenue and Taxation Code is amended
and renumbered to read:
   18409.  (a) The Franchise Tax Board shall prescribe regulations
providing standards for determining which returns shall be filed on
magnetic media or in other machine-readable form.  The Franchise Tax
Board shall not require returns of any tax imposed by Part 10
(commencing with Section 17001) on individuals, estates, and trusts
to be other than on paper forms supplied by the Franchise Tax Board.
In prescribing those regulations, the Franchise Tax Board shall take
into account, among other relevant factors, the ability of the
taxpayer to comply at a reasonable cost with that filing requirement.

   (b) (1) Subdivision (a) is applicable only to taxpayers required
to file returns on magnetic media or in other machine-readable form
pursuant to Section 6011(e) of the Internal Revenue Code and the
regulations adopted thereto.
   (2) For purposes of paragraph (1), the last sentence of Section
6011(e)(2) of the Internal Revenue Code, shall not apply.
   (3) In addition, the regulations under subdivision (a) shall not
require that returns filed on magnetic media or in other
machine-readable form contain more information than is required to be
included in similar returns filed with the Internal Revenue Service
under Section 6011(e) of the United States Internal Revenue Code and
the regulations adopted thereto.
   (c) In lieu of the magnetic media or other machine-readable form
returns required by this section, a copy of the similar magnetic
media or other machine-readable form returns filed with the Internal
Revenue Service pursuant to Section 6011(e) of the Internal Revenue
Code, and the regulations adopted thereto, may be filed with the
Franchise Tax Board.
  SEC. 36.  Section 23802 of the Revenue and Taxation Code is amended
to read:
   23802.  (a) Section 1363(a) of the Internal Revenue Code, relating
to the taxability of an "S corporation," shall not be applicable.
   (b) Corporations qualifying under this chapter shall continue to
be subject to the taxes imposed under Chapter 2 (commencing with
Section 23101) and Chapter 3 (commencing with Section 23501), except
as follows:
   (1) The tax imposed under Section 23151 or 23501 shall be imposed
at a rate of 11/2 percent rather than the rate specified in those
sections.
   (2) In the case of an "S corporation" which is also a financial
corporation, the rate of tax specified in paragraph (1) shall be
increased by the excess of the rate imposed under Section 23183 over
the rate imposed under Section 23151.
   (c) An "S corporation" shall be subject to the minimum franchise
tax imposed under Section 23153.
   (d) (1) For purposes of subdivision (b), an "S corporation" shall
be allowed a deduction under Section 24416 or 24416.1 (relating to
net operating loss deductions), but only with respect to losses
incurred during periods in which the corporation had in effect a
valid election to be treated as an "S corporation" for purposes of
this part.
   (2) Section 1371(b) of the Internal Revenue Code, relating to
denial of carryovers between "C years" and "S years," shall apply for
purposes of the tax imposed under subdivision (b), except as
provided in paragraph (1).
   (3) The provisions of this subdivision shall not affect the amount
of any item of income or loss computed in accordance with the
provisions of Section 1366 of the Internal Revenue Code, relating to
passthrough items to shareholders.
   (4) For purposes of subdivision (b) of Section 17276, relating to
limitations on loss carryovers, losses passed through to shareholders
of an "S corporation," to the extent otherwise allowable without
application of that subdivision, shall be fully included in the net
operating loss of that shareholder and then that subdivision shall be
applied to the entire net operating loss.
   (e) For purposes of computing the taxes specified in subdivision
(b), an "S corporation" shall be allowed a deduction from income for
built-in gains and passive investment income for which a tax has been
imposed under this part in accordance with the provisions of Section
1374 of the Internal Revenue Code, relating to tax imposed on
certain built-in gains, or Section 1375 of the Internal Revenue Code,
relating to tax imposed on passive investment income.
   (f) For purposes of computing taxes imposed under this part, as
provided in subdivision (b):
   (1) An "S corporation" shall compute its deductions for
amortization and depreciation in accordance with the provisions of
Part 10 (commencing with Section 17001) of Division 2.
   (2) The provisions of Section 465 of the Internal Revenue Code,
relating to limitation of deductions to the amount at risk, shall be
applied in the same manner as in the case of an individual.
   (3) (A) The provisions of Section 469 of the Internal Revenue
Code, relating to limitations on passive activity losses and credits,
shall be applied in the same manner as in the case of an individual.
  For purposes of the tax imposed under Section 23151 or 23501, as
modified by this section, material participation shall be determined
in accordance with Section 469(h) of the Internal Revenue Code,
relating to certain closely held "C corporations" and personal
service corporations.
   (B) For purposes of this paragraph, the "adjusted gross income" of
the "S corporation" shall be equal to its "net income," as
determined under Section 24341 with the modifications required by
this subdivision, except that no deduction shall be allowed for
contributions allowed by Section 24357.
   (4) The exclusion provided under Section 18152.5 shall not be
allowed to an "S corporation."
   (g) The provisions of Section 1363(d) of the Internal Revenue
Code, relating to recapture of LIFO benefits, shall be modified for
purposes of this part to refer to Section 19101 in lieu of Section
6601 of the Internal Revenue Code.
  SEC. 37.  Section 23810 of the Revenue and Taxation Code is
repealed.
